Legends of Wheels Part V: Alan Mulally

This article is part V to the following articles

http://boyracer.blogspot.in/2012/04/legends-of-wheels-part-isergio.html

http://boyracer.blogspot.in/2012/04/legends-of-wheels-part-ii-carlos-ghosn.html

http://boyracer.blogspot.in/2012/04/legends-of-wheels-part-iii-lee-iacocca.html

http://boyracer.blogspot.in/2012/05/legends-of-wheels-part-iv-siddharth-lal.html

When the Big Three from America fell due to US Dollar lending issues in 2008, The largest car company in the world termed 'too big to fail' failed. Billions of taxpayer money had to be put into GM (General Motors) to get it running again. Shareholders value was written off and 50% workforce was cut. The same was the case with Chrysler Corporation, the third largest company fresh from divorce with Daimler Benz (Mercedes-Benz) from Germany. The company too faced the same fate except Sergio Marchionne of Fiat showed interest in the company. The only company left standing was Ford Motors. This was no miracle, but smart thinking and forecasting of one man, Alan Mullaly.

Finding the Leader

In September, 2006, then-CEO of Ford Motor Company William Clay Ford Jr. took a risk. In search of his own replacement, his offers were passed up by many respected automotive leaders such as Dieter Zetsche and Carlos Ghosn, so he took the unexpected step: he hired an aeronautical engineer to lead his own company. The rest is history.

Since the last few years, the majority of news in the automotive industry has little good to print. Recalls, arbitration, dealership closings and what not. The exception has been Ford Motor Company. They seem to have cornered the market on positive automotive news with much of the credit going to the man at the top - Alan Mullaly. Ford was notorious for its caustic corporate culture. Executives put their own advancement and the success of their own departments ahead of the bottom line. The company was divided into warring fiefdoms. Different sets of data were used to make different points to different constituencies. And the automaker consistently bet big on homerun products only to let them languish after their initial success.

When Mulally was tapped as Ford CEO in the spring of 2006, reaction inside the company ranged from suspicion to outrage. What did an airplane guy know about the car business? "There were lots of raised eyebrows," recalls Bill Ford. The management team was particularly rattled, especially those who were hoping to fill the job themselves. Ford was heading for a $12.7-billion loss and on the verge of losing its No. 2 sales spot in the U.S. to Toyota because of poor management and an uninspiring vehicle lineup. Four years later, Ford reported a $6.6-billion profit — the biggest in the sector that year — and Toyota was comparing its cars with Fords, not Hondas, in its ads.

As much of the competition struggles with challenges that have followed one of the worst years in the industry's history, Ford has its eyes forward. The choices that Mulally and his team have made over the last 3 and a half years are a model for how struggling automakers and their CEOs should handle adversity and do what few in the business are expected to do today. It then is not surprising to know that various industry leaders mocked Mullaly when he joined Ford.

The beginnings

The first vehicle to see Mulally's hand was the Ford Taurus. Ford's prior designs and quality were worthy of jokes just like the GM and Chrysler. Ford's Taurus in their designers own words looked like a football. But Alan Mullaly knows the value of a brand name from his previous stint at Boeing. He asked the engineers and designers to bring back the Taurus in the coolest shape possible in a two year timeline. The company launched the famous Taurus SHO in 2009.

The early move that truly marked his understanding of business, trends, and the economy came in his first couple of months when he mortgaged all of Ford's assets for $23.6 billion. At the time it was widely criticized as desperate and he was called an alarmist when he said the money would help in both development and as “a cushion to protect for a recession or other unexpected event."

Two years later, the critics were silenced as his desperate move paid off. The 2008 recession saw the other two companies go down under bankruptcy while Ford survived without loans of any sort from the government. Ford lost $14.8 billion in 2008, the most in its 105-year history, and burned through $21.2 billion, or 61%, of its cash hoard.

 But that didn't mean Mullaly didn't plan for a bailout if necessary. The CEO's of the Big Three went to ask for loan in their private jets which met with national outcry. (http://abcnews.go.com/Blotter/WallStreet/story?id=6285739&page=1). The company quickly sold 5 of the 6 jets and the next meeting saw the CEO drive in a Hybrid to ask for a loan. Mulally made a promise both to his company and the American people. If Ford accepted a bailout, he would reduce his salary (currently at $2,000,000 a year) to $1. Luckily for him, his company, and the American people, they did not accept a bailout and are the last of the Detroit Big 3 who stands as an independent company not in bankruptcy.  Mulally protected product spending even as Ford cut thousands of staff and economized on everything else, down to paper clips and plant watering. 

What people Wanted

The decision to sell Jaguar and Land Rover to Tata Motors in 2007 was symbolic of the turmoil the company was going through as they received $2.3 billion, much lower than what was paid for the companies. Aston Martin was sold of to investors in the Middle East. Volvo was sold to an unknown Chinese company. Mercury was dealt the death blow and has been cleared from the showroom floors in 2011. But while many including me question the sale of the brands, the fact remains that such moves brought the company much needed liquid cash in the time of need.  Ford also sold Their stake in Mazda when the situation became more grave.

But the Mullaly had one goal - 'FORD' and he saved the name. The company also jumped the innovation bandwagon and turned out the most advanced models with technology such as FORD SYNC. The Mustang has been refreshed to take on the likes of Cheverolet Camaro and Dodge Challenger. The Fiesta Focus with Windows technology and Bluetooth  are some of the most advanced cars in the industry today.

Creating one Ford

It did not take Mulally long to realize that there was not just one Ford, but many. In addition to just plain Ford, there was Ford of Europe, Ford of Asia and a host of other divisions and subsidiaries. And there was little coordination, or even cooperation between its many parts. All the divisions churned out different cars leading to lack of economies of scale.

Mulally’s first priority was to weld these disparate regional divisions together into a single, global enterprise. By doing that, he was able to create previously unimaginable economies of scale and create a multinational automotive powerhouse. In an early meeting with reporters, Mulally was asked if he was interested in a merger. “Yes!” he exclaimed with a big grin as we all whipped open our notebooks. “We’re going to merge with ourselves.” Today the same Ford Fiesta and Focus models are sold in US, Europe, Australia and South America.

The Outcome

Consumer Reports this month recommended 70% of Ford's vehicles, vs. 19% of GM's and none of Chrysler's.

Mulally’s vision took Ford back to its roots. He came across an ad Henry Ford had taken out in the Saturday Evening Post in 1925. Ford’s vision: opening the highways for all mankind. Although Ford did not invent the automobile, he transformed it from a rich man’s toy to a utility for the everyman. Mulally believed that Ford had to return to its vision, democratizing technology and quality so everyone could afford a best-in-class car.